For many Americans, homeownership is the ladder to wealth creation. According to recent Fed data, homeowners have a net worth that’s nearly 40 times higher than renters.
However, due to rising housing costs and stagnant wages, many first-time homebuyers have been locked out of this opportunity. In fact, buying a median-priced home on an average wage today is as hard as it has ever been.
Are “starter homes” as unaffordable? And is the housing affordability crisis a uniquely American phenomenon or a common pattern across the globe?
To answer that question, Creditnews Research studied purchasing power-adjusted wages and starter home prices in the United States and 25 other countries to determine how many years of income first-time homebuyers in those countries need to buy their first home.
For a diverse apples-to-apples comparison, all countries included in the study were from the Organization for Economic Cooperation and Development (OECD)—a group of nations committed to democracy and operating as market economies.
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In the United States, it takes an average of 3.7 years of PPP-adjusted income to afford a "globally benchmarked" starter home, assuming an average 636-square-foot, two-bedroom unit price of $287,000. This compares to the 5.6 years of income needed to afford a median-priced home priced at $431,000;
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Switzerland has the worst affordability for starter homes, as it takes 13.5 years of PPP-adjusted income to afford a 636-square-foot two-bedroom unit;
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Among the other OECD countries studied, Turkey (2.7 years), Belgium (3.5 years), the United States, and Costa Rica (3.8 years) have the most affordable starter homes;
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Although the United States is grappling with the worst home affordability crisis in history, Americans can still get more space with a considerably smaller proportion of income compared to other countries if they’re willing to downsize to smaller condos;
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The catch is that these "globally benchmarked" starter homes are too small by American standards.
Years of income needed to buy a starter home across 26 OECD countries
There are various ways to gauge housing affordability. One of them is to determine how many years' worth of income buyers require to cover the full cost of a home.
Creditnews Research has calculated the number of years of PPP-adjusted income that homebuyers need to purchase a "globally benchmarked" starter homes across OECD countries with populations of at least 5 million people.
As these homes differ from the typical American market (i.e., single-family detached), they offer much lower price points than the median home price in the U.S. ($431,000 as of Q3 2023).
In the United States, it takes 3.7 years' worth of income to afford a typical starter home priced at $287,000. This is significantly less than the 5.6 years of income needed to afford a median-priced home.
Countries with comparable affordability ratios include Turkey (2.7 years), Belgium (3.5 years), Costa Rica (3.8 years), Colombia (3.9 years), and Chile (4 years).
Switzerland tops the list for having the most expensive two-bedroom units in major city centers, requiring 13.5 years' worth of income to afford such a property.
Among the least affordable countries also are Australia (7.7 years), Japan (7.7 years), France (7.1 years), Germany (7.1 years), New Zealand (7.7 years), Sweden (7.7 years), and Canada (7 years).
Are American houses simply too big?
Although starter home prices have increased along with the broader real estate market, Americans still have options to snag an affordable home. They just need to look beyond places like New York City, Miami, Los Angeles, Phoenix, Seattle, Boston, and the like.
A January 2024 report by This Old House, the company behind the Emmy award-winning home improvement series, discovered plenty of cities where starter homes remain highly affordable relative to income.
Unlike our study, these starter homes also include single-detached units with a backyard.
The study ranked the top 10 cities for starter homes based on cost, mortgage rate relative to income, concentration of restaurants and entertainment, and violent crime rate. Based on these criteria, the top five cities were Fort Wayne, Ind., Laredo, Tx., Virginia Beach, Va., Oklahoma City, Okla., and Louisville, Ky.
In fact, three of the top 10 cities were located in Texas, one in Florida, one in Arizona, and one in Nevada—highly desirable states based on net migration. Eight of the ten cities have average starter home costs below the $287,000 average in our study.
Not only that, American housing units are typically much bigger than those in other nations.
According to This Old House, starter homes in the U.S. typically range from 1,200 to 2,000 square feet. In comparison, average home sizes in Europe (regardless of whether they’re "starter homes" or not) range from about 930 square feet in the U.K. to 1,140 square feet in Portugal, according to a 2021 study published in the National Library of Medicine.
In major economies like Germany and France, average home sizes are just over 1,000 square feet—much less starter homes.
In other words, Americans can still get more space with a considerably smaller proportion of income compared to other countries, provided they are willing to downsize to European standards.
Methodology
"Globally-benchmarked" starter home: A 636 square foot 2-bedroom unit located in major urban centers.
Although there’s no official definition of a starter home, it’s considered a smaller, more affordable unit that’s an ideal starting point for first-time buyers. According to multiple sources, a typical starter home in the U.S. average 1,250 square feet.
That said, the definition of a “starter home” vary from country to country. Unlike in North America, where larger, single-detached homes are the norm, homebuyers in Japan and Europe prefer smaller condos in high-rise apartments.
To overcome this limitation and normalize data across 26 selected counties in our study, we defined a starter home as a 636-square-foot condo—the average 2-bedroom unit across the Eurozone and the United Kingdom.
Average PPP-adjusted annual income
For a fair income comparison, Creditnews Research relied on the OECD’s database of average wages, which normalizes earnings using the national accounts-based methodology (i.e., total wage bill divided by the number of employees in the economy).
Wages are expressed in U.S. dollars and adjusted for inflation using 2016 constant prices and Purchasing Power Parities (PPPs) for private consumption in the same year—which provides a meaningful comparison of real purchasing power across different countries.
- OECD: Average Wages
- Numbeo: Price Rankings by Country of Price per Square Meter to Buy Apartment in City Centre
- Eurostat. Housing in Europe (2023) Interactive Publication
- Eurostat. Housing Price Statistics
- Statista. Average Residential Real Estate Meter prices In Europe 2022
- Letizia Appolloni and Daniela D’Alessandro (2021). “Housing Spaces in Nine European Countries: A Comparison of Dimensional Requirements.” National Library of Medicine
- U.S. Census Bureau (June 11, 2011). How American Homes Vary By the Year They Were Built